A UK Business Owner's Guide to Tax: Corporation Tax, VAT, CGT & More
Your 2025/26 guide to UK business tax. We explain Corporation Tax rates and reliefs, Capital Gains Tax, VAT, and the Construction Industry Scheme (CIS).
Running a business in the UK involves navigating a complex landscape of different taxes. Understanding your obligations for Corporation Tax, VAT, Capital Gains Tax, and other schemes isn't just about compliance; it's about smart financial management that can save your business money and fuel its growth.
At Plouta, our mission is to provide you with clear, actionable knowledge to help you take control of your finances. This guide will demystify the main taxes UK limited companies and business owners face in 2025. We'll break down the rates, explain key reliefs, and offer practical tips on tax-efficient planning.
What You Will Learn in This Guide ⤵
Corporation Tax: How your profits are taxed and the different rates for 2025/26.
Capital Gains Tax for Businesses: The rules for selling assets and how to save money.
VAT (Value Added Tax): Understanding the threshold and your responsibilities.
Construction Industry Scheme (CIS): A brief on what it is and who it affects.
Key Tax Reliefs: How to legitimately reduce your business's tax bill.
1. Corporation Tax: The Tax on Your Company's Profits
This is the main tax that all limited companies in the UK must pay on their annual profits.
Corporation Tax Rates (Financial Year 2025 - starting 1 April 2025)
The UK has a tiered system for Corporation Tax, which remains unchanged for the 2025/26 financial year:
| Company's Taxable Profits | Corporation Tax Rate |
|---|---|
| Up to £50,000 | 19% (Small Profits Rate) |
| £50,001 to £250,000 | 25% (with Marginal Relief) |
| Over £250,000 | 25% (Main Rate) |
What is Marginal Relief? If your company's profits are between £50,000 and £250,000, you pay tax at the 25% main rate, but you can claim "Marginal Relief." This provides a gradual increase in the effective tax rate, so you don't face a sudden jump from 19% to 25%. You can use HMRC's online tool to calculate your specific relief.
Key Corporation Tax Reliefs to Save Money:
Capital Allowances: You can deduct the value of business assets (like equipment, machinery, and vehicles) from your profits before tax. The Annual Investment Allowance (AIA) allows you to deduct the full value of qualifying items up to £1 million in the year you buy them.
Research and Development (R&D) Tax Credits: This is a hugely valuable relief. If your company spends money on innovative projects in science and technology, you can claim a significant Corporation Tax reduction or a cash payment.
Pension Contributions: Contributions your company makes to employees' and directors' pensions are typically allowable business expenses, reducing your taxable profit.
2. Capital Gains Tax (CGT) for Businesses
When an individual sells an asset for a profit, they pay Capital Gains Tax. However, a limited company handles this differently.
How it works: A limited company does not pay Capital Gains Tax. Instead, the profit (or "gain") made from selling a business asset (like property, machinery, or shares in another company) is added to your company's trading profits.
The Tax: This gain is then taxed at your company's standard Corporation Tax rate (19% or 25%).
For Sole Traders and Partnerships: If you operate as a sole trader or partnership, you pay Capital Gains Tax personally on the sale of business assets.
Key Relief: Business Asset Disposal Relief (BADR)
Formerly known as Entrepreneurs' Relief, BADR is a critical tax relief for business owners when they sell all or part of their business.
It allows you to pay a much lower rate of Capital Gains Tax – 14% – on the first £1 million of lifetime gains.
Important Note: The government has announced changes to this relief. The rate has increased to 14% from 6 April 2025 and then again to 18% from 6 April 2026. This makes the timing of a business sale a crucial consideration.
How to Save Money on Capital Gains Tax (as an individual business owner):
Utilise your Annual Exempt Amount: Every individual has a CGT allowance each tax year (currently £3,000 for 2025/26).
Transfer assets to a spouse: You can transfer assets to your spouse or civil partner tax-free, allowing you to use both of your annual allowances when the asset is sold.
Claim BADR: If you qualify, ensure you claim this valuable relief on your Self Assessment tax return.
3. VAT (Value Added Tax)
VAT is a tax applied to the sale of most goods and services.
VAT Registration: You must register for VAT if your business's VAT-taxable turnover exceeds the registration threshold in a 12-month period.
Current Threshold (2025/26): The threshold is £90,000.
Standard VAT Rate: The standard rate is 20%.
How it works: Once registered, you must charge VAT on your sales to customers. You can then reclaim the VAT you have paid on your own business purchases. You pay the difference over to HMRC, usually on a quarterly basis.
Voluntary Registration: You can choose to register for VAT even if your turnover is below the threshold. This can be beneficial if your customers are all VAT-registered businesses themselves (as they can reclaim the VAT) and it allows you to reclaim VAT on your own business costs.
4. Construction Industry Scheme (CIS)
What it is: The CIS is a specific set of rules for handling payments for construction work in the UK. It is not a separate tax but a system for collecting tax upfront.
How it works: If you are a "contractor" in the construction industry, you must deduct money from the payments you make to your "subcontractors" and pay this directly to HMRC. This deduction acts as an advance payment towards the subcontractor's tax and National Insurance bill.
Deduction Rates: The rate of deduction depends on whether the subcontractor is registered with HMRC for CIS:
20% for registered subcontractors.
30% for unregistered subcontractors.
0% (Gross Payment Status): Subcontractors who meet certain criteria can apply for gross payment status, meaning no deductions are taken.
Who it affects: Any business operating in the construction industry, including contractors, subcontractors, and property developers. It is crucial to understand your obligations under this scheme to avoid penalties.
| Tax / Allowance / Scheme | Rate / Threshold |
|---|---|
| Corporation Tax | |
| Small Profits Rate (profits up to £50,000) | 19% |
| Main Rate (profits over £250,000) | 25% |
| Marginal Relief (profits between £50,001 and £250,000) | Up to 26.5% |
| Capital Allowances & Gains | |
| Annual Investment Allowance (AIA) | £1,000,000 |
| Capital Gains for Limited Companies | Taxed as profit at Corporation Tax rates |
| Business Asset Disposal Relief (BADR) Rate* (for Sole Traders/Partners) |
14% |
| Personal Capital Gains Tax Annual Exemption | £3,000 |
| VAT (Value Added Tax) | |
| VAT Registration Threshold | £90,000 |
| Standard VAT Rate | 20% |
| Construction Industry Scheme (CIS) | |
| Deduction Rate (Registered Subcontractors) | 20% |
| Deduction Rate (Unregistered Subcontractors) | 30% |
*The Business Asset Disposal Relief (BADR) rate increased from 10% to 14% on 6 April 2025. All figures are based on information for the 2025/26 tax and financial year.
Know Where You Stand: Take the Plouta Financial Wellness Survey
Taking our Financial Wellness Survey is a great first step. It will help you reflect on your habits and identify the key areas to focus on in your journey towards financial freedom.
Conclusion: Proactive Tax Planning is Key
Navigating business tax in the UK requires careful attention to detail and proactive planning. By understanding the basics of Corporation Tax, VAT, and Capital Gains Tax, and by making full use of the valuable reliefs and allowances available, you can significantly improve your company's financial health.
Keeping accurate records and staying on top of deadlines are fundamental. For complex situations, especially regarding Capital Gains or R&D reliefs, consulting with a qualified accountant is not just a cost – it's an investment in your business's success and your own financial peace of mind.
Get one-to-one tax advice
We’ll find a tax adviser perfectly matched to your needs. Getting started is easy, fast and free.
Disclaimer: This guide provides general information about UK business taxes based on rules and rates known as of June 2025. It is for informational and educational purposes only and does not constitute financial or tax advice. Tax laws are complex and subject to change. Your business's specific circumstances will affect your tax liability. Always seek professional, regulated advice from a qualified accountant or tax specialist.